(1) Rules for determinations under section 302 (b) In the case of any acquisition of stock to which subsection (a) of this section applies, determinations as to whether the acquisition is, by reason of section
302 (b), to be treated as a distribution in part or full payment in exchange for the stock shall be made by reference to the stock of the issuing corporation. In applying section
318 (a) (relating to constructive ownership of stock) with respect to section
302 (b) for purposes of this paragraph, sections
318 (a)(2)(C) and
318 (a)(3)(C) shall be applied without regard to the 50 percent limitation contained therein.
(2) Amount constituting dividend In the case of any acquisition of stock to which subsection (a) applies, the determination of the amount which is a dividend (and the source thereof) shall be made as if the property were distributed
(A) by the acquiring corporation to the extent of its earnings and profits, and
(B) then by the issuing corporation to the extent of its earnings and profits.
(3) Coordination with section 351
(A) Property treated as received in redemption Except as otherwise provided in this paragraph, subsection (a) (and not section
351 and not so much of sections
357 and
358 as relates to section
351) shall apply to any property received in a distribution described in subsection (a).
(B) Certain assumptions of liability, etc.
(i) In general In the case of an acquisition described in section
351, subsection (a) shall not apply to any liability
(I) assumed by the acquiring corporation, or
(II) to which the stock is subject,
if such liability was incurred by the transferor to acquire the stock. For purposes of the preceding sentence, the term stock means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a).
(ii) Extension of obligations, etc. For purposes of clause (i), an extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements.
(iii) Clause (i) does not apply to stock acquired from related person except where complete termination Clause (i) shall apply only to stock acquired by the transferor from a person
(I) none of whose stock is attributable to the transferor under section
318 (a) (other than paragraph (4) thereof), or
(II) who satisfies rules similar to the rules of section
302 (c)(2) with respect to both the acquiring and the issuing corporations (determined as if such person were a distributee of each such corporation).
(C) Distributions incident to formation of bank holding companies If
(i) pursuant to a plan, control of a bank is acquired and within 2 years after the date on which such control is acquired, stock constituting control of such bank is transferred to a BHC in connection with its formation,
(ii) incident to the formation of the BHC there is a distribution of property described in subsection (a), and
(iii) the shareholders of the BHC who receive distributions of such property do not have control of such BHC,
then, subsection (a) shall not apply to any securities received by a qualified minority shareholder incident to the formation of such BHC. For purposes of this subparagraph, any assumption of (or acquisition of stock subject to) a liability under subparagraph (B) shall not be treated as a distribution of property.
(D) Definitions and special rule For purposes of subparagraph (C) and this subparagraph
(i) Qualified minority shareholder The term qualified minority shareholder means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply.
(ii) BHC The term BHC means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).
(iii) Special rule in case of BHCs formed before 1985 In the case of a BHC which is formed before 1985, clause (i) of subparagraph (C) shall not apply.
(4) Treatment of certain intragroup transactions
(A) In general In the case of any transfer described in subsection (a) of stock from 1 member of an affiliated group to another member of such group, proper adjustments shall be made to
(i) the adjusted basis of any intragroup stock, and
(ii) the earnings and profits of any member of such group,
to the extent necessary to carry out the purposes of this section.
(B) Definitions For purposes of this paragraph
(i) Affiliated group The term affiliated group has the meaning given such term by section
1504 (a).
(ii) Intragroup stock The term intragroup stock means any stock which
(I) is in a corporation which is a member of an affiliated group, and
(II) is held by another member of such group.
(5) Acquisitions by foreign corporations
(A) In general In the case of any acquisition to which subsection (a) applies in which the acquiring corporation is a foreign corporation, the only earnings and profits taken into account under paragraph (2)(A) shall be those earnings and profits
(i) which are attributable (under regulations prescribed by the Secretary) to stock of the acquiring corporation owned (within the meaning of section
958 (a)) by a corporation or individual which is
(I) a United States shareholder (within the meaning of section 951(b)) of the acquiring corporation, and
(II) the transferor or a person who bears a relationship to the transferor described in section
267 (b) or
707 (b), and
(ii) which were accumulated during the period or periods such stock was owned by such person while the acquiring corporation was a controlled foreign corporation.
(B) Regulations
The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of this paragraph.
(6) Avoidance of multiple inclusions, etc. In the case of any acquisition to which subsection (a) applies in which the acquiring corporation or the issuing corporation is a foreign corporation, the Secretary shall prescribe such regulations as are appropriate in order to eliminate a multiple inclusion of any item in income by reason of this subpart and to provide appropriate basis adjustments (including modifications to the application of sections
959 and
961).
